ET has reported that SBICap Securities has recommended the following 12 stocks as being value picks:
Coal India Ltd: Target price Rs 493
Depreciation of the currency from the average of Rs 63.6/US$ to Rs 66.6/US$ is likely to lead to an increase in imported coal prices. Further, concerns on currency depreciation are likely to discourage future coal imports by players.
Hence, we are likely to foresee an improvement in e-auction coal realisations, which stood at Rs 2,183/tonne in 1QF16. Further assuming a dividend pay-out of Rs 20/share in FY16e, the stock has an attractive dividend yield of 6 per cent at the current market price.
The key risks remain in the lower-than-estimated volume growth, likely delay in auctioning of coal linkages and weak e-auction realisations.
Container Corp of India: Target price Rs 1,875
CONCOR has guided a capex of Rs 10 bn for FY16, mainly towards addition of rakes and construction activity for the MMLPs. The research firm believes that the company would infuse the capex through internal accruals owing to its strong balance sheet position. As of F15, CONCOR has a cash surplus of Rs 26 bn and zero debt on its book.
Compared to its peers, CONCOR has unmatched presence across India, allowing it to enjoy a prolonged period of growth, even as it maintains market leadership in the sector. SBICAP believes that the company is well poised to capture the robust growth prospects in the logistics sector, mainly led by a) unmatched infrastructure, b) pick up in EXIM trade and c) commissioning of DFC and MMLPs.
Dr Reddy’s Laboratories Ltd: Target price Rs 4,448
While Dr Reddy’s Laboratories (DRL) remains our top pick among our large cap coverage universe, SBICAP anticipates a 10 per cent-12 per cent near-term upside potential in the stock following yesterday’s correction.
The research firm is positive on the near-term Srikakulam resolution and expects a limited 4 per cent EPS impact for F16e from the US$/VEF currency reset. The research firm believes DRL has built multiple growth levers to deliver a 21 per cent EPS growth in the next three years and 24 per cent beyond F18e, including 15 competitive ANDA launches aggregating over US $15 bn in market sales (Nexium, Copaxone, Aloxi, Pentesa, Diprivan etc), rapid expansion in proprietary product mix and emerging markets (EM).
Hero MotoCorp Ltd: Target price Rs 2,426
On the back of the recent fall in stock prices, SBICAP believes that Hero MotoCorp (HMCL) is their preferred pick and go-to-stock, given its attractive valuations at CMP of Rs 2,473. Trading at 17.3x of F16e is a good point of entry.
Moreover, they believe that good progress of monsoon and an upcoming festive season will propel revival in the rural economy, which is well insulated at the moment. Being a rural centric company, HMCL is the largest beneficiary of increase in rural demand.
Moreover, the recent currency fluctuation will also not impact the earnings trajectory significantly, given limited exposure to exports markets.
Infosys Ltd: Target price Rs 1,225
With the appointment of Vishal Sikka as the first-ever non-promoter CEO, the much-needed stability has returned to Infosys, which has seen many senior level exits with dwindling revenue and margin performance.
After bringing stability in the first few quarters, we expect the focus to shift to drive higher revenue growth rates through improved client mining, better access to Fortune 500/Global 1000 accounts and possibly more proactive cash usage.
The research firm models for a 10.3 per cent USD revenue CAGR over F15-F17e (8.5 per cent CAGR over F13-F15), after considering cross-currency headwinds. Considering stability returning in operating performance, best-in-class cash conversion, anticipation of attrition rate trending down, clarity emerging on leadership and future strategic direction, they maintain HOLD on the stock with a target price of Rs 1,225 at 19x F17e earnings.
Kaveri Seeds Ltd: Target price Rs 780
A non-eventful FY16 and non-provisioning of royalty saved (representing 20 per cent of F15 profits) during 1QF16 has kept the stock under pressure. Additionally, Monday’s sharp correction of 10 per cent (26 per cent since 15th August, 2015) appears unwarranted, as SBICAP believes that Kaveri Seed is well-placed to clock in a strong F17e EPS recovery together with a quality play on hybrid seeds.
As current price, the stock is trading at 8x on F17e EPS (30 per cent discount to 3 year historical mean valuation), the brokerage firm recommends a BUY on the stock with a target price of Rs 780.
NTPC Ltd: Target price Rs 163
NTPC is poised to take advantage of revival in industrial demand, as it has capacities in place along with improvement in fuel supply (CIL is supplying 91.5 per cent of ACQ in 1QF16) it can easily increase generation as and when industrial demand improves, coupled with soft coal prices, the research firm visualises sales to expand 12.2 per cent CAGR over F15-F17e and upgrade the stock to BUY with TP of Rs 163 (earlier Rs 145).
Power Grid Corporation Ltd: Target price Rs 184
Power Grid Corporation of India’s (PGCIL) is expected to maintain its strong capitalisation to continue in F16e/F17e, leading to strong earnings growth momentum. PGCIL reported a PAT growth of 13.4 per cent to Rs 13.7 bn in 1QF16.
Meanwhile, capitalisation till date has been in line with expectations and the research firm expects a significant ramp-up in the same with commissioning of the Biswanath Chariyali-Agra transmission line, which is now likely to be energised by 2QF16e.
The company commissioned projects worth about Rs 45 bn and incurred a capex of Rs 64 bn in 1QF16. Management is optimistic that the robust commissioning will boost earnings and remains upbeat on the 13th Five Year Plan and green energy corridor capex. We note a strong capex visibility as well.
Tata Consultancy Services Ltd: Target price Rs 2,750
Recent management interaction suggests that demand environment is improving, and FY16 would be a better year. The management confidence comes from the recent macro data across the US and Europe, showing an improving economic environment, which augurs well for IT spending.
Meanwhile, the US portfolio is seeing an uptick in discretionary spending and Europe is seeing increasing impetus on outsourcing. The management is seeing a strong pipeline in both discretionary as well as RTB businesses and also witnessing strong traction in digital projects.
TCS, backed by its broad-based service offering and presence across industry verticals and geographies, is well placed to garner a fair share of the demand pie.
UltraTech Cements Ltd: Target price Rs 2,901
Ultratech Cement (UTCEM), with its pan-India cement capacity, leaves enough headroom for volume delta, given the current lower capacity utilisation and cost effectiveness, and is the best player in the cement sector.
Though the research firm feels the valuations are not very reasonable, any sharp downward movement due to the continued current weak market sentiments will make the stock attractive from a long-term perspective.
Unichem Laboratories Ltd: Target price Rs 313
Unichem (UL) is the preferred midcap pharma pick. SBICAP sees improving operating leverage from the India and US business segments driving a 38 per cent growth in earnings over the coming years. With solid dividend yield and strong cash flows, the value aspect of the stock should not be lost.
They expect margins to expand to 14.5 per cent in F17e, with improving operating leverage in the India and US markets. Factoring yesterday’s fall of 10 per cent, Unichem is trading at 11.8x on F17e (vs. 17-20x for mid-caps).
Yes Bank Ltd: Target price Rs 970
Yes Bank has corrected 26 per cent from its 52-week high, of which 15 per cent has come in the last week itself. SBICAP believes that such sharp corrections are unwarranted, given that they believe that systemic liquidity situation is adequate.
At the current price, the stock is trading at 2.0x F16e BV and 1.7x F17e BV. They have a BUY rating (TP of Rs 970) as they expect the bank to maintain high return ratios of 1.6 per cent RoA and over 20 per cent RoE over F16-F17, aided by an expanding branch network, higher NIM and healthy asset quality.